I don't think that anthropogenic global warming will be substantial enough to justify massive and expensive interventions to limit Co2. I won't go into the reasons for this statement, as I have a whole other blog dedicated to climate. If you are unfamiliar with the arguments that Co2 is likely warming the Earth, but not by nearly as much as alarmists claim, you might start with some of these videos.

However, it seems almost inevitable that the new Congress and Administration will do "something" on Co2, if for no other reason that it has become a self-image issue on the left (i.e. I am a good person because I care about global warming). We libertarians are seldom very good at engaging on issues of how such government interventions should be done best. Every time people ask us our opinion of how to structure such a program to do the least harm, we get about 5 seconds into an answer before we just break down and start yelling, "this is crazy! Do nothing! Leave us alone!" (actually, emissions laws are one of the few areas where government regulation helps to protect private property rights).

The carbon tax is a much, much better approach to reducing CO2 than cap-and-trade systems. Cap-and-trade is bad for the same reason that politicians like it -- it offers a near infinite playing field for lobbying, special rules, influence-peddling, special exemptions, government chosen winners, etc. while hiding the fact that it is in fact a huge new tax. My more detailed argument on this can be found here and here and here.

A new carbon tax should be revenue neutral. After all, the point in the first place is not to raise revenues, but to provide a pricing signal that Americans need to switch away from carbon-based fuels.

A good place to offset revenues is the payroll tax. Both fuel taxes and payroll taxes are criticized for being regressive, so it is an easy place to try to forge a compromise with the left. Further, the payroll tax acts effectively as a tax on hiring, so a reduction would certainly be welcome any time, and particularly in a recession.

We need to create a streamlined licensing program for nuclear reactors. Utilities, particularly ones dependent on coal today, need a realistic option to continue to provide power at reasonable cost in their communities. Solar and wind are just not reasonable alternatives today. Nukes are the only carbon-free scalable generating technology we have.

Again, I don't think the dislocations required here are worth the effort, but this is the best way to do it if we must.

Postscript: By the way, here is one thing no one is telling you. Folks in Congress have tossed around carbon and fuel tax ideas that might add, say 25 cents per gallon. But if we are truly in thrall to the climate alarmists and take their recommendations, then Co2 outputs must be reduced 50-80% in this country. We are talking about reducing Co2 output to levels before 1920! To do this will require a truly massive tax. Just to scale it, over the last year gas prices doubled by about $2 a gallon, and total miles driven fell by less than 5%. Europe is at around $8-$9 gas and are nowhere near these climate goals. I don't think it would be too much to say that gas prices would have to top $20 to reach these goals.

This is why I think the most likely case for climate regulation is that we will have some kind of tax or cap system but that this system will be far short of anything that will really reduce Co2 or even stop its growth. The costs are just too high, and the benefits too shaky. You can see that in Europe, as countries back off Kyoto goals (and even Kyoto goals are far short of what alarmists think we need to be hitting). And any progress they have made against Kyoto goals has mainly been accidents of changing enconomic and political structures rather than the result of any real targeted action. What we will get is something that costs a lot without accomplishing much, but will make the left feel better about themselves. Sound familiar?

26 Comments

Paul McLellan:

Surely deciding the outcome (reduction in CO2 by a certain percentage) and then assessing what the harm is (as a $ value) is completely backwards. We should work out the harm (let's say it's $1/gallon) and set the tax there, and somehow get this done on a worldwide basis. The US is a rich country so what you would actually expect to happen is that the US is so rich that in effect they pay other countries to drive less and make very little change themselves.

If we had a worldwide CO2 tax such that US drives dropped consumption by, say, 50% (I'd guess you'd need around $10/gallon at least) then much of the rest of the world would have to stop driving completely.

kebko:

The likely policies seem like the perfect solution for everyone involved. The politicians can gain the votes of all the worried souls for doing the "right thing" & can stand in judgment of all the industries coming to Washington to bow in reverence & ask for waivers.

And, since it couldn't possibly lead to the targeted reductions, the worried souls can continue to fuel their righteous indignation by complaining about how everyone else is still "addicted" to carbon.

Rick Caird:

The problem with this idea is that not all of us pay the payroll tax. I have recently retired and none of my income is subject to FICA or Medicare. So, for me, it is all expense and no offsetting reduction.

So we will go forward to tax the very essence of our existence because some computer programmer (the guy who wrote the environmentalist's model) thinks CO2 will increase dangerously?

Add to that premise the thought that revenues from the carbon tax will be used to finance the Social Security Ponzi scheme in lieu of charging workers (and employers?)for payroll taxes. What sense does this make, except as a blatant redistribution of wealth.

Move over, Joe the Plumber, the nutroots are everywhere ...even on libertarian blogs.

Chris:

I believe global warming has the chance to become Obama's version of Hillary Care, i.e. the bridge too far that craters his momentum. If the Republicans in Congress rise to the occassion, rather than yielding to it, they will be able to force a real debate on the scientific merits. Once the American public sees the lack of "consensus" and the cost / benefit of the GW solutions, the whole idea could be relegated to the the "ash heap of history". Of course, the press will do their best to help the GW cause, but if the Republicans insist on getting the facts out, they may be able to kill it.

Interestingly enough, Obama would actually gain a massive amount of momentum if he let the debate go on for a while and then stepped in to kill the GW crusade. The stock market would likely soar, and he would get the credit. Much like during the Cold War, when "only a Republican could do a deal with China / Russia", I believe that only a Democrat can kill off the man-made GW mania.

gadfly -"So we will go forward to tax the very essence of our existence because some computer programmer (the guy who wrote the environmentalistâ€™s model) thinks CO2 will increase dangerously?"
No. The carbon tax doesn't tax all carbon in the world, so don't get too dramatic.
The idea is to go forward to tax consumption rather than production.

"Add to that premise the thought that revenues from the carbon tax will be used to finance the Social Security Ponzi scheme in lieu of charging workers (and employers?)for payroll taxes. What sense does this make, except as a blatant redistribution of wealth."
Well, if you've figured out a way to stop financing Social Security, I'm listening. If you have not, the government will continue with its blatant redistribution of wealth whether we shift taxation or not.

I assume you have not. So, how are we going to pay for those entitlements? Should we tax consumption or production (specifically, labor)?
Consumption-led growth seems to have exhausted itself, unemployment is rising, and consumer debt is a serious problem. Got a better, workable idea for addressing these problems? Something compelling, so that people prefer your plans to those of the Democrats?

Noumenon:

The problem with this idea is that not all of us pay the payroll tax. I have recently retired and none of my income is subject to FICA or Medicare. So, for me, it is all expense and no offsetting reduction.

I think I just figured out why we are always cutting the rate on the progressive income tax and not the regressive payroll tax. (Other than people who make over the cap on FICA wages, I mean.)

$20/gallon gas? Maybe eventually, but the price has to be adjusted upwards gradually so that consumers have time to adjust by investing in energy efficiency and changing driving habits to reflect the true costs of gasoline. The real key is that the carbon tax must be revenue-neutral. Revenue-neutrality must protect people like Rick Caird, who is no longer in the work force and wouldn't benefit from reduced payroll tax deductions. Payroll tax deductions could be supplemented by increased social security and EITCs.

To learn more about carbon taxes, see our Carbon Tax Center web site at http://www.carbontax.org. Today's post describes the convergence of views from right to left around a carbon tax.

To propose a shift in taxation targets is to believe that such an action is necessary. I believe that shifting from regressive payroll taxes to regressive energy consumption taxes will change whose ox is being gored only slightly. Energy plays a very large and integral part in fulfilling almost all basic human needs ...and is necessary to provide transport to and from places of employment. Taxing energy consumption simply will not help the bottom layer of wage-earners.

So we have to examine why this tax shift, if revenue neutral, is even proposed. Are we caving to AGW pseudo-science or do we hope to end dependency on carbon-based energy generation when we simply have no other cost-effective technology available?

As for Social Social, the options have always been decrease benefits, allow workers to opt out, or continue to pay benefits with general revenues when cash flow doesn't come from current wage earners. Since we do not now make SS payments from "lockbox" funds, who is kidding who?

My belief is that simplified tax structures are the answer to taxation. Let's eliminate the fees for everything, and all flavors of taxes in favor of a consumption tax of some kind to generate government revenues.

Allen:

If the idea is to give in and go with the least evil, I'll take cap and trade. Sure, it has it problems. But as Dan from the Carbon Tax Center illustrates for us, they'll raise that tax as high as they possibly can and don't give a damn that they are blatantly manipulating our lives. I see cap and trade as being a bit like the CAFE standards. Sure, they're going to be manipulated and have a lot of smoke and mirrors and be used to stifle competition. But if you have a huge carbon tax, you also stifle competition by massively shrinking demand (why bother getting into a shrinking market). And I'm not the least bit concerned if energy producers come up with a clever way of being able to burn coal while getting it's CO2 output to come in under the cap a la Ford and GM's embrace of ethanol to help keep themselves under CAFE's limits. And it just seems risky to embrace the carbon tax and count on another tax being lowered.

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